We all make financial mistakes. When it comes to credit cards, there are a number of bad decisions that any consumer can make. Here is a list of 10 common mistakes made by credit card holders. I hope you can learn from the mistakes of others and save yourself from financial hardship.
1. Getting too many credit cards at once
It’s a common trap. Credit card companies advertise their credit cards everywhere and continually promote new credit cards, programs and offers. Don’t ask for too many credit cards at once. This can create a red flag on your credit report by making you look like a risky customer. Plus, it can lower your credit score.
If a new card comes out, we never recommend closing an old account because your history and the age of your accounts are a factor in your credit score. If the new card you want is from the same issuer, call your credit card company and ask them to convert you from one type of card to another. This is all done in house, and although you won’t be able to take advantage of this new promotional offer, you will end up with the new card you wanted.
2. Getting the wrong type of card
Many consumers get a new credit card for the wrong reasons. When you need a new card, it shouldn’t be a knee-jerk decision based on a TV commercial. Rather, you need to determine why you need a new card and thoroughly research the options available to make an informed decision.
Do you need to transfer a balance from a high interest card to a low interest card during an introductory period? Do you need a card with a low ongoing interest rate? A card for business? All of these reasons are valid for getting a new card. However, it’s important to research and compare offers to get the best card for your individual financial situation.
3. Make minimum payments
This is one of the biggest mistakes consumers make. You charge a thousand dollars and then find out that your minimum payment is only $25 per month. Sounds attractive, but you might end up paying a ridiculous amount of money in interest charges over the years.
Aim to pay off your credit card in full and on time each month instead of carrying over a balance from one month to the next. If that’s not possible, repay as much as you can each month. Never fall into the trap of only paying the minimum amount. While it’s a good idea to set aside money each month in your savings account, consider the fact that most savings accounts only earn a fraction of the interest you pay on the balance of your credit card. It might make more financial sense to pay off your credit card first and save that money in interest charges.
4. Not reviewing your statement every month
It’s common practice for people to receive their statement and quickly pay the bill without reviewing it. In today’s world, credit card fraud is quite common. Additionally, errors occur and sometimes payments are not processed correctly. Be sure to review your credit card statement carefully each month to ensure that all of your charges are correct, authorized, and that your payments are showing on time and in the correct amount. It can save you money and prevent damage to your credit score if you are a victim of identity theft.
5. Buy what you can’t afford
You should only charge something if you can afford to pay it back in full on time when your credit card statement is due. Otherwise, you will pay significant interest penalties on this remaining balance. It may be tempting to buy that last must-have item, but if you can’t pay it when the bill is due, then financially it’s not worth it to you.
6. Getting a card for the wrong reasons
Many consumers are enticed to apply for a credit card because of the big promises made in the ad. It can be the cashback bonus or the extra miles earned by subscribing to a certain card. But don’t fall victim to creative advertising campaigns. It’s important to get a card for the right reasons. Decide what you need in a credit card, then go find the best one to meet those needs.
7. Impulsively asking for a card
Department store clerks always ask if we’d like to save 10% today by asking for the store’s credit card. All in all, saving 10% on a purchase won’t amount to much, especially since retail credit cards often have very high interest rates.
It’s important to spend time researching and comparing credit cards from various issuers each time you apply for a new card. You should never impulsively apply for a card in a department store or on the basis of an advertisement. Be sure to research all the information before applying for a new card.
8. Use of cash advances
One of the biggest mistakes you can make with a card is withdrawing a cash advance from your credit card. Cash advances generally have a higher interest rate than your current interest rate. Also, it’s rarely a good idea to use money you don’t already have. It’s easy to rack up hundreds or even thousands of dollars in interest charges on cash advances. Only use them in an actual emergency.
9. Exceed your credit limit
Going over your credit limit is a bad financial decision and can hurt your credit score as well. Even using too much of your credit limit can penalize your score. One of the main factors that determine your credit score is your debt utilization rate. Never carry a balance over 30% of your credit limit. Therefore, if your card has a credit limit of $10,000, the maximum you should charge in a month is $3,000.
10. Not reading the fine print
Every credit card contract has fine print. It is extremely important to read and understand the terms and conditions of your card. You must know the details of the promotional interest rates or the limits of the points you can earn. These details are hard to understand and boring to read, but that’s where the real facts are described.
These 10 mistakes are made by millions of credit card consumers every year. If you are aware and careful, you may be able to avoid some of these pitfalls and save some money in the process.